State increases efforts to combat worker misclassification

Yesterday, the state’s Labor and Revenue Departments announced that they will be working together to combat businesses who misclassify workers as “contractors” to get out of paying their required taxes and workers’ compensation insurance. The Governor had convened a task force to look at this issue back in August, after the News & Observer published a story about businesses who had been evading the rules:

Honest employers struggled to compete as competitors cut corners by treating employees as independent contractors to save on taxes and insurance. All the while, state agencies operated in silos, failing to share information and crack down on businesses that break the rules.

The two agencies coming together on Monday was therefore a significant show of collaboration– a departure from the “isolation and independence that has marked the agencies.” They have already began working together an sharing information:

… the Division of Employment Security has shared its database of businesses that pay unemployment taxes with the Industrial Commission, which oversees and settles disputed workers compensation claims. Meanwhile, the Industrial Commission and the Revenue Department have prepared an information packet to be distributed to businesses about their tax and insurance obligations.

As the N&O also reports, although the extent of the problem of worker misclassification is not known exactly, it is considered to be widespread, particularly in the construction industry. An investigation by the Division of Employment Security found that 40 percent of businesses required to pay unemployment taxes in the state had classified workers as contractors when they should have been classified as employees. Thousands of other cases were found as problems arose when employees made claims for benefits or provided tips to agencies.

The issue of worker misclassification is a problem across the country. The National Employment Law Project estimates that labeling workers as “independent contractors” decreases payroll costs for employers by 15 to 30 percent. It also means that these employers are not responsible for overtime, minimum wage, workers’ compensation, and other worker protections. It is also bad for states, because they do not receive the payroll and other taxes from employers.

Unscrupulous businesses should not be allowed to get away with skirting the rules, while other businesses strive to uphold standards and abide by the regulations. It makes for an uneven playing field, in which some businesses profit at the expense of their workers. In the long run, it only serves to hamper the state economy as these workers are afforded less financial and economic security. The task force established by Governor Perdue is a good step forward in combating this issue in NC.